Summary: 1. Failure to use base rates. Kahneman: Inside view vs. Outside view. Start by thinking about the reference class, and don't overweight the details of individual circumstance. 2. Failure to understand regression to the mean . Definition: Outcomes that are far from average will be followed by outcomes with an expected value closer to the average. The rate of regression to the mean depends on where the metric lies on the “luck-skill” continuum, e.g. Gross Profitability has persistence, earnings growth does not. 3. Overconfidence . Definition: You predict a range of possible outcomes that is too narrow. 4. Relying excessively on multiples . “Multiples are not valuation, they are a shorthand for valuation." Two determinants: (1) ROIC vs WACC spread, (2) Growth 5. Failure to compare effectively . Two mistakes when using analogies: breadth and depth.
Jesus Christ taught in analogies, i.e., parables. I wonder if he has these guides written down for reference each time he goes over an idea. How in the world did Jesse Livermore manage to make money with such simple “rules of thumb”: The big money was not in the individual fluctuations but in the main movements, sizing up the entire market and it's trend. 83 My greatest discovery was that a man must study general conditions, to size them up so as to be able to anticipate probabilities. 141 The wise trader never ceases to study general conditions, to keep track of developments everywhere that are likely to affect or influence the course of various markets. After years at the game it becomes a habit to keep posted. Unless a man can anticipate future events his ability to speculate successfully is limited. Every successful player has to anticipate that everyone is going to think at some time in the future what he is thinking today. 275 But facts are facts and the strongest of allies are conditions. 291 It was a dividend declared by my faith in my judgment and not by cleverness or vanity. Knowledge is power and power need not fear lies. 295 Success is primarily a matter of opportunity, but the difficulty is to always recognize the opportunity. A man must school himself to look ahead, keeping himself informed as to the situation not only in this country but in foreign countries. 371
Summary:
1. Failure to use base rates.
Kahneman: Inside view vs. Outside view. Start by thinking about the reference class, and don't overweight the details of individual circumstance.
2. Failure to understand regression to the mean
. Definition: Outcomes that are far from average will be followed by outcomes with an expected value closer to the average. The rate of regression to the mean depends on where the metric lies on the “luck-skill” continuum, e.g. Gross Profitability has persistence, earnings growth does not.
3. Overconfidence
. Definition: You predict a range of possible outcomes that is too narrow.
4. Relying excessively on multiples
. “Multiples are not valuation, they are a shorthand for valuation." Two determinants: (1) ROIC vs WACC spread, (2) Growth
5. Failure to compare effectively
. Two mistakes when using analogies: breadth and depth.
cheers
This is one of the very best investment videos on RUclips.
So think of everything how Bernanke did about housing prices in 2005. Got it.
Jesus Christ taught in analogies, i.e., parables.
I wonder if he has these guides written down for reference each time he goes over an idea.
How in the world did Jesse Livermore manage to make money with such simple “rules of thumb”:
The big money was not in the individual fluctuations but in the main movements, sizing up the entire market and it's trend. 83
My greatest discovery was that a man must study general conditions, to size them up so as to be able to anticipate probabilities. 141
The wise trader never ceases to study general conditions, to keep track of developments everywhere that are likely to affect or influence the course of various markets. After years at the game it becomes a habit to keep posted.
Unless a man can anticipate future events his ability to speculate successfully is limited.
Every successful player has to anticipate that everyone is going to think at some time in the future what he is thinking today. 275
But facts are facts and the strongest of allies are conditions. 291
It was a dividend declared by my faith in my judgment and not by cleverness or vanity. Knowledge is power and power need not fear lies. 295
Success is primarily a matter of opportunity, but the difficulty is to always recognize the opportunity. A man must school himself to look ahead, keeping himself informed as to the situation not only in this country but in foreign countries. 371
What does extrapolate mean? In a simple way...
It means to forecast based on your recent experience. If it rained yesterday & today, we tend to extrapolate that it will rain tomorrow.
@@santoshragi thank you
Buy silver and gold. Lots